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Return Predictability Market Timing And Volatility
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Book Synopsis Return Predictability, Market Timing and Volatility by : Abhay Abhyankar
Download or read book Return Predictability, Market Timing and Volatility written by Abhay Abhyankar and published by . This book was released on 2002 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We revisit the evidence on the economic value of the predictive ability of the short rate for excess stock returns using market timing regressions and seven decades of US market data on aggregate indices, size decile portfolios and industry portfolios. We ask two questions. First, has the economic value of the predictive power of the short rate for stock returns changed over time? Second, can information on return volatility be used to enhance the profitability of market timing strategies? Our main results are as follows: first, we find that the economic value, to a naive investor, of the predictive ability of the short rate is low prior to the 1951 Treasury Accord period, high during the period 1950-1975 and has disappeared in the last two decades. We also find that the short rate has the most predictive ability for the durables industry sector and the smaller size stock portfolios. Second, we find that that market timing strategies are most profitable during periods of intermediate volatility. Our contribution here is to propose a new and simple approach that allows investors to significantly enhance the profitability of market timing strategies by optimally using information both in return and volatility forecasts.Key words: Return predictability; short rate, sign regressions, filter rules, volatility.
Book Synopsis Complex Systems in Finance and Econometrics by : Robert A. Meyers
Download or read book Complex Systems in Finance and Econometrics written by Robert A. Meyers and published by Springer Science & Business Media. This book was released on 2010-11-03 with total page 919 pages. Available in PDF, EPUB and Kindle. Book excerpt: Finance, Econometrics and System Dynamics presents an overview of the concepts and tools for analyzing complex systems in a wide range of fields. The text integrates complexity with deterministic equations and concepts from real world examples, and appeals to a broad audience.
Book Synopsis The Economic Significance of Some Simple Models of Time Series Stock Return Predictability by : Ben Jacobsen
Download or read book The Economic Significance of Some Simple Models of Time Series Stock Return Predictability written by Ben Jacobsen and published by . This book was released on 1999 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we study the economic significance of simple time series models of stock return predictability. We investigate the practical usefulness of recent findings on time series return predictability of stock returns and their volatility for dynamic tactical asset allocation decisions. We introduce a mean variance investor with an investment horizon of one year who takes investment decisions daily. When stock returns follow a random walk this investor holds constant proportions of a stock market index and a risk free asset. Using past data and knowledge of some well known return predictability results (i.e. predictability based on calendar anomalies and predictability from economic variables like dividend yields and short term interest rates), we evaluate whether, how and to what extent these predictability results might affect his investment decisions. For this investor we also investigate the practical usefulness of knowledge about the predictability over time of market volatility. The design we choose is as follows. We give the predictability results the benefit of the doubt and assume that all the estimates and models are correct and indeed accurately describe the true return generating process. We then analyze analytically, numerically and by Monte Carlo simulation the effect of investment decisions--conditional on these predictability results--on the return distribution of his portfolio. We also introduce transactions costs in this setting; these influence investment choices. Our main findings are that small transactions costs substantially reduce potential benefits of trading on calendar anomalies. Generally, however trading remains profitable under the assumption that stock market returns are partially predictable from economic variables like dividend yields and interest rates. This holds for relatively large transactions costs. Trading on volatility predictability is not profitable, except in the case of negligible transactions costs.
Book Synopsis Essays on Return Predictability and Volatility Estimation by : Yuzhao Zhang
Download or read book Essays on Return Predictability and Volatility Estimation written by Yuzhao Zhang and published by . This book was released on 2008 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on the Predictability and Volatility of Returns in the Stock Market by : Ruojun Wu
Download or read book Essays on the Predictability and Volatility of Returns in the Stock Market written by Ruojun Wu and published by . This book was released on 2008 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the effect of parameter uncertainty on the return predictability and volatility of the stock market. The first two chapters focus on the decomposition of market volatility, and the third chapter studies the return predictability. When facing imperfect information, the investors tend to form a learning scheme that encompasses both historical data and prior beliefs. In the variance decomposition framework, the introducing of learning directly impacts the way that return forecasts are revised and consequently the relative component of market volatility based on these forecasts, namely the price movements from revision on future discount rates and those from future cash flows. According to the empirical study in Chapter 1, the former is not necessarily the major driving force of market volatility, which provides an alternative view on what moves stock prices. Learning is modeled and estimated by Bayesian method. Chapter 2 follows the topic in Chapter 1 and studies the role of persistent state variables in return decomposition in order to provide more robust inference on variance decomposition. In Chapter 3 we propose to utilize theoretical constraints to help predict market returns when in sample data is very noisy and creates model uncertainty for the investors. The constraints are also incorporated by Bayesian method. We show in the out-of-sample forecast experiment that models with theoretical constraints produce better forecasts.
Book Synopsis Sequential Optimal Portfolio Performance by : Michael S. Johannes
Download or read book Sequential Optimal Portfolio Performance written by Michael S. Johannes and published by . This book was released on 2011 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the economic benefits of return predictability by analyzing the impact of market and volatility timing on the performance of optimal portfolio rules. Using a model with time-varying expected returns and volatility, we form optimal portfolios sequentially and generate out-of-sample portfolio returns. We are careful to account for estimation risk and parameter learning. Using Samp;P 500 index data from 1980-2000, we find that a strategy based solely on volatility timing uniformly outperforms market timing strategies, a model that assumes no predictability and the market return in terms of certainty equivalent gains and Sharpe ratios. Market timing strategies perform poorly due estimation risk, which is the substantial uncertainty present in estimating and forecasting expected returns.
Book Synopsis Forecasting Expected Returns in the Financial Markets by : Stephen Satchell
Download or read book Forecasting Expected Returns in the Financial Markets written by Stephen Satchell and published by Elsevier. This book was released on 2011-04-08 with total page 299 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting returns is as important as forecasting volatility in multiple areas of finance. This topic, essential to practitioners, is also studied by academics. In this new book, Dr Stephen Satchell brings together a collection of leading thinkers and practitioners from around the world who address this complex problem using the latest quantitative techniques.*Forecasting expected returns is an essential aspect of finance and highly technical *The first collection of papers to present new and developing techniques *International authors present both academic and practitioner perspectives
Book Synopsis Handbook of Economic Forecasting by : Graham Elliott
Download or read book Handbook of Economic Forecasting written by Graham Elliott and published by Elsevier. This book was released on 2013-08-23 with total page 667 pages. Available in PDF, EPUB and Kindle. Book excerpt: The highly prized ability to make financial plans with some certainty about the future comes from the core fields of economics. In recent years the availability of more data, analytical tools of greater precision, and ex post studies of business decisions have increased demand for information about economic forecasting. Volumes 2A and 2B, which follows Nobel laureate Clive Granger's Volume 1 (2006), concentrate on two major subjects. Volume 2A covers innovations in methodologies, specifically macroforecasting and forecasting financial variables. Volume 2B investigates commercial applications, with sections on forecasters' objectives and methodologies. Experts provide surveys of a large range of literature scattered across applied and theoretical statistics journals as well as econometrics and empirical economics journals. The Handbook of Economic Forecasting Volumes 2A and 2B provide a unique compilation of chapters giving a coherent overview of forecasting theory and applications in one place and with up-to-date accounts of all major conceptual issues. - Focuses on innovation in economic forecasting via industry applications - Presents coherent summaries of subjects in economic forecasting that stretch from methodologies to applications - Makes details about economic forecasting accessible to scholars in fields outside economics
Download or read book Asset Pricing written by John H. Cochrane and published by Princeton University Press. This book was released on 2009-04-11 with total page 560 pages. Available in PDF, EPUB and Kindle. Book excerpt: Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model--consumption based, CAPM, multifactor, term structure, and option pricing--is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.
Book Synopsis Equity Return Predictability, Time Varying Volatility and Learning about the Permanence of Shocks by : Daniel Tortorice
Download or read book Equity Return Predictability, Time Varying Volatility and Learning about the Permanence of Shocks written by Daniel Tortorice and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Predicting Stock Returns by : David G McMillan
Download or read book Predicting Stock Returns written by David G McMillan and published by Springer. This book was released on 2017-11-30 with total page 141 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a comprehensive analysis of asset price movement. It examines different aspects of stock return predictability, the interaction between stock return and dividend growth predictability, the relationship between stocks and bonds, and the resulting implications for asset price movement. By contributing to our understanding of the factors that cause price movement, this book will be of benefit to researchers, practitioners and policy makers alike.
Book Synopsis Stock Return Predictability and Investor Sentiment by : Licheng Sun
Download or read book Stock Return Predictability and Investor Sentiment written by Licheng Sun and published by . This book was released on 2016 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the predictive relation between high-frequency investor sentiment and stock market returns. Our results are based on a proprietary dataset of high-frequency investor sentiment, which is computed based on a comprehensive textual analysis of sources from news wires, internet news sources, and social media. We find substantial evidence that intraday S&P 500 index returns are predictable using lagged half-hour investor sentiment. The predictability is evident based on both in-sample and out-of-sample statistical metrics. We document that this sentiment effect is independent of the intraday momentum effect, which is based on lagged half-hour returns. While the intraday momentum effect only exists in the last half hour, the sentiment effect persists in at least the last two hours of a trading day. From an investment perspective, high-frequency investor sentiment also appears to have significant economic value when evaluated with market timing trading strategies.
Author :Torben Gustav Andersen Publisher :Springer Science & Business Media ISBN 13 :3540712976 Total Pages :1045 pages Book Rating :4.5/5 (47 download)
Book Synopsis Handbook of Financial Time Series by : Torben Gustav Andersen
Download or read book Handbook of Financial Time Series written by Torben Gustav Andersen and published by Springer Science & Business Media. This book was released on 2009-04-21 with total page 1045 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook of Financial Time Series gives an up-to-date overview of the field and covers all relevant topics both from a statistical and an econometrical point of view. There are many fine contributions, and a preamble by Nobel Prize winner Robert F. Engle.
Book Synopsis On Market Timing and Investment Performance Part II: Statistical Procedures for Evaluating Forecasting Skills by : Roy Henriksson
Download or read book On Market Timing and Investment Performance Part II: Statistical Procedures for Evaluating Forecasting Skills written by Roy Henriksson and published by . This book was released on 2023-07-18 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Market Timing Ability and Volatility Implied in Investment Newsletters' Asset Allocation Recommendations by : John R. Graham
Download or read book Market Timing Ability and Volatility Implied in Investment Newsletters' Asset Allocation Recommendations written by John R. Graham and published by . This book was released on 1994 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Stock Market Volatility and Stock Return Predictability by : Shu Yan
Download or read book Three Essays on Stock Market Volatility and Stock Return Predictability written by Shu Yan and published by . This book was released on 2000 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Three Essays on Stock Market Volatility by : Chengbo Fu
Download or read book Three Essays on Stock Market Volatility written by Chengbo Fu and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on stock market volatility. In the first essay, we show that investors will have the information in the idiosyncratic volatility spread when using two different models to estimate idiosyncratic volatility. In a theoretical framework, we show that idiosyncratic volatility spread is related to the change in beta and the new betas from the extra factors between two different factor models. Empirically, we find that idiosyncratic volatility spread predicts the cross section of stock returns. The negative spread-return relation is independent from the relation between idiosyncratic volatility and stock returns. The result is driven by the change in beta component and the new beta component of the spread. The spread-relation is also robust when investors estimate the spread using a conditional model or EGARCH method. In the second essay, the variance of stock returns is decomposed based on a conditional Fama-French three-factor model instead of its unconditional counterpart. Using time-varying alpha and betas in this model, it is evident that four additional risk terms must be considered. They include the variance of alpha, the variance of the interaction between the time-varying component of beta and factors, and two covariance terms. These additional risk terms are components that are included in the idiosyncratic risk estimate using an unconditional model. By investigating the relation between the risk terms and stock returns, we find that only the variance of the time-varying alpha is negatively associated with stock returns. Further tests show that stock returns are not affected by the variance of time-varying beta. These results are consistent with the findings in the literature identifying return predictability from time-varying alpha rather than betas. In the third essay, we employ a two-step estimation method to separate the upside and downside idiosyncratic volatility and examine its relation with future stock returns. We find that idiosyncratic volatility is negatively related to stock returns when the market is up and when it is down. The upside idiosyncratic volatility is not related to stock returns. Our results also suggest that the relation between downside idiosyncratic volatility and future stock returns is negative and significant. It is the downside idiosyncratic volatility that drives the inverse relation between total idiosyncratic volatility and stock returns. The results are consistent with the literature that investor overreact to bad news and underreact to good news.
